Japan Bonds Drop for a Third Day as Recovery Signs, Shares Curb Safety Bid

Yields rose for a third day after a report showed Japan’s
economy grew faster in the third quarter than initially
estimated and before data forecast to show fewer Americans filed
claims for jobless benefits. Bonds also slumped as Japanese
stocks climbed to a seven-month high.

“When the U.S. macro economy improves, the heart of
Japan’s export sector, electronics and cars, will improve,”
said Junichi Makino, a Tokyo-based senior economist at Daiwa
Institute of Research Ltd. “Long-term bond yields are on the
upward trend.”

The yield on the benchmark 10-year bond increased four
basis points to 1.27 percent as of 4:06 p.m. in Tokyo at Japan
Bond Trading Co., the nation’s largest interdealer debt broker.
The 1.2 percent security due December 2020 lost 0.354 yen to
99.378. The yield reached the highest level since June 4. A
basis point is 0.01 percentage point.

Ten-year bond futures for March delivery retreated 0.08 to
139.12 at the 3 p.m. close of the Tokyo Stock Exchange. The
Nikkei 225 Stock Average gained 0.5 percent to the highest close
since May 14.

Japan’s gross domestic product grew at an annualized 4.5
percent rate in the three months ended Sept. 30, faster than the
3.9 percent reported last month, the Cabinet Office said today.
The number of applications for jobless benefits in the U.S. fell
to 425,000 last week from 436,000, according to a Bloomberg
survey of economists before today’s Labor Department report.

Japan’s GDP

Bank of Japan board member Yoshihisa Morimoto said today
upside and downside risks for the economy are “generally
balanced.”

Bonds briefly gained, sending yields on the 10-year
security down more than 4 basis points on the day. Today’s GDP
data showed the deflator, a gauge of prices across the economy,
fell 2.4 percent in the third quarter from a year earlier.
Deflation, or a general drop in prices, enhances the value of
fixed payments from bonds.

“I expect deflation to persist for a substantially long
time,” said Takeshi Minami, chief economist at Norinchukin
Research Institute Co. in Tokyo.

The relative strength index for Japanese 10-year yields
crossed above 70 today, a threshold some traders see as a sign
an asset’s value is poised to change direction.

The benchmark five-year yield gained 3.5 basis points to
0.545 percent after surging yesterday by the most since June 11,
2008. The Ministry of Finance sold 2.4 trillion yen ($28.6
billion) of the securities today. The bid-to-cover ratio, which
gauges demand by comparing the number of bids to the amount of
securities sold, dropped to 2.78 from 3.93 in November.

The ministry has sold 10-year and 30-year bonds this month.
The bid-to-cover ratios dropped at both auctions.